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The markets will need to adjust to a new reality on Monday, as there is little in the Budget that will boost the earnings of corporate India. While the governments intent on the goods and services tax (GST) and commitment to lower the corporation tax rate is a positive, there is little that Finance Minister Arun Jaitley has done by way of relief for the companies. The Budget speech needs to be viewed as the governments vision statement, and not a stimulus package industry was expecting. Foreign brokerages remain optimistic on their earnings projections, of close to 20 per cent, for FY16. The India strategist for a leading foreign brokerage expects earnings to grow 20 per cent in FY16.

These earnings projections look as optimistic, as Jaitleys revenue collection target of 16 per cent. Like some of his predecessors, Jaitleys Budget speech is high on intent but low on deliverables. The FM has shown his commitment to rationalising the tax structure by lowering corporate tax rate from 30 per cent to 25 per cent over the next four years but the tax rate for the current year has risen by 60 basis points to 34.6 per cent. In FY16, effective corporate tax rate has risen from 33.9 per cent to 34.61 per cent, thanks to the increase in surcharge. Ketan Dalal, senior tax partner at PwC, says while corporate tax rate is intended to go down to 25 per cent over four years, for FY16 it will still be 30 per cent. The surcharge has been increased from 10 per cent to 12 per cent, which in addition to education cess, takes the effective rate to 34.61 per cent from 33.99 per cent..

Indian equities, trading at 20 times one-year forward earnings, are likely to look very expensive, as such a high multiple will not be backed by double-digit earnings growth. Given that corporate earnings have grown six per cent in the first nine months of FY15, there is no way earnings will grow 18-20 per cent in FY16 as estimated by the market. Higher tax incidence will also likely eat into already weak profit growth. However, theres plenty of good news for foreign investors. Sanjay Sanghvi, tax partner at Khaitan & Co, says deferral of General Anti Avoidance Rules, reassurance on stable and predictable tax regime, excluding foreign institutional investors and from minimum alternate tax and commitment to lower corporate taxes are positive from a long-term perspective.

The market was expecting the government to kick-start investments by increasing capital spending. In the face of slowing tax collection, it is evident the FM did not have the requisite space to do so. In FY16, the government has increased expenditure by 5.7 per cent, of which revenue spending is set to increase by 3.2 per cent and capital expenditure by 25.5 per cent. Dhananjay Sinha of Emkay Global says while the Rs 85,000-crore allocation to infrastructure will be positive, the governments muted revenue expenditure will not give a boost to the industrys revenue growth in the new financial year. Lower revenue spending will have an immediate impact on rural consumption. The FM has assumed gross tax receipts in FY16 to grow 16 per cent, twice the revised estimates of the government. Dinesh Thakkar, chairman and managing director of Angel Broking, believes additional spending is going towards medium-term growth enhancing areas such as infrastructure, education, skill development and sanitation.

The rise in indirect taxes higher excise and service tax could also impact consumption, say analysts. The FM has increased excise duty to 12.5 per cent across the board. Abneesh Roy, associate director (institutional research) at Edelweiss Securities, says the increase in service tax from 12.36 per cent to 14 per cent is negative for retail companies such as Shoppers Stop, Future Retail, Jubilant FoodWorks and jewellery firms such as Titan and PC Jeweller. Also, with no rise in income-tax exemptions, urban consumption might not get a boost.

With the Budget over, the markets now look up to the Reserve Bank of India for a much-needed stimulus by way of rate cuts. While most economists expect a 50 basis point cut through 2015, other foreign brokerages are building in a rate cut of 150 basis points.